Abstract:
The dairy industry is one of the most important and influential agricultural sector in New Zealand. Ensuring and enhancing the industry's productivity and efficiency represent a fundamental issue in New Zealand economic growth. September 2007, the NZ Labour Government proposed an Emission Trading Scheme as a way to comply with its Kyoto obligation, and it is the first country in the world that brings agricultural sector in. Given the emission intensive nature of dairy production, the industry is facing substantial increases in production costs and reduction in payout. The efficiency performance of dairy farming might also be affected as a result of changing farming practices. The overall objective of the thesis is to analyze the efficiency performance of NZ dairy farming, with implications regarding the climate change issue. Stochastic frontier analysis is applied to a panel of NZ dairy farms in 1998/99-2006/07. The structures of the existing production technology, technological change over time, and difference between South Island and North Island dairy farming are investigated within this stochastic frontier framework. An input efficiency measure is defined and evaluated at the expected cost minimizing input bundle. If the efficiency performance for emission intensive inputs could be improved, dairy farms will decrease their emissions without loss of production or additional costs. This input efficiency measure therefore allows for the combination of a farm's environmental pressure with its economic performance. Finally, the likely impacts of the ETS on dairy industry are discussed through an analysis regarding the point of obligation issue, and an illustration of changing farming practices when fertilizer price goes up as a result of emission charges.
